Icici To Adopt Bullet Transition

In a change of strategy, ICICI is going in bullet migration path towards universal banking instead of taking a gradual approach. The combination of easy liquidity and low interest rate regime has prompted the financial institution to follow this sudden transition approach.

The new entity will be born on March 31 2002. In effect, this means ICICI will become a bank on that day (provided the Reserve Bank of India gives it nod) fulfilling all the statutory requirements. Earlier, the plan was to become a bank in 12 to 18 months gradually migrating to the obligations on assets as well as the liabilities sides.

Since ICICI plans to become a bank on March 31 next year, it will start buying SLR securities with immediate effect. The merged entity will have a CRR and SLR requirement of Rs 18,000 crore.

Both ICICI and ICICI Bank will start purchasing government securities to fulfill this obligations in right earnest from next week so that by March 31, 2002, when the merger takes effect both the entities would have Rs 18,000 crore of securities in their portfolios.

Since the banking sector is saddled with excess SLR holdings of Rs 1,20,000 crore, ICICI may persuade banks to privately place government securities with the new entity. Alternately, the RBI can make placements with ICICI. By following these routes, the secondary debt market will remain unaffected. "We are looking at all possibilities," ICICI chief k V Kamath said.

ICICI had initially set a 18 month transition period for conversion into universal bank. However with the announcement that the merged entity will start off with the mandated CRR and SLR investments the transition period has now been reduced to 5 months. The merged entity will start off with a priority sector lending of 20 per cent instead of the mandated 40 per cent. The institution will gradually raise this over a period of time, Kamath said.

ICICI's executive director Kalpana Morparia said: "The new private sector banks had also been given time to reach the 40 per cent priority sector level."